Koch industries has grown into a global powerhouse

5 Lessons for Entrepreneurs from the Koch Brothers

May 3, 2015
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I enjoy reading about the Koch brothers. They are one of the few modern-day, family business dynasties left. And not unlike the industrialists of the early 20th century, they too are often misrepresented by the mainstream media.

The Kochs’ rise to prominence in the business world had everything to do with hard work, humility and sticking to their beliefs. Led mainly by brothers David and Charles, the Kochs took their father’s successful, medium-sized business and turned it into one of the world’s largest private companies, known as Koch Industries. The company now manufactures and markets thousands of products, ranging from paper cups to fertilizer. It employs roughly 100,000 people worldwide, and has operations in almost every state in the US. But, not unlike most successful entrepreneurs, Koch Industries has gone through tremendous ups and downs along the way, including a criminal probe from the US government.

There is much we can learn from this group of business-minded brethren. Here are the 5 most important entrepreneurial lessons to be learned from the Koch brothers:

5 Entrepreneurial Lessons Courtesy of the Koch Brothers

1.    Keep Your Head Down and Work

By choice, Koch Industries opted to stay out of the limelight for much of its existence. It did this mainly because it was engrained in the brothers from a young age, by their father, that humility was a virtue; and that seeking attention, or bringing it upon oneself, would lead to distractions away from business, unnecessary scrutiny and personal attacks.

 

2.    Don’t Mix Business with Politics

The Kochs are now known as controversial, billionaire political activists. But it wasn’t always this way. Charles Koch, a brilliant business man, made a critical mistake of throwing his company in the middle of his personal political agenda. While I admire people who stand up for their political beliefs, getting your company involved in your personal agenda is dangerous, and will often create dissension within your ranks. It certainly did for Charles.

Charles Koch is a Libertarian. And after watching the US go in a direction he bitterly opposed, Charles made it his goal to push the Libertarian agenda into the minds of Americans. He believes, and many agree, it is a political view that provides Americans with the most freedom. However, by throwing millions of dollars at his political cause, Charles inserted his company in the middle of media and political firing squads.

Those who disagreed with Charles’ politics saw vulnerability, and went for the throat of his company in retaliation. As you can imagine, this brought tremendous strain on relationships within Koch Industries. It was speculated to be one of the reasons behind Charles’ own brother taking him to court in a multimillion dollar lawsuit that lasted years, and created a public relations nightmare for Koch Industries.

 

3. Establish a Trusted Brand Then Broadly Diversify

Koch Industries originally started as a crude oil refining company (in the 1940s). After establishing its brand as a trusted business within that industry, the company grew into a globally diversified corporation. Now working in cattle, fertilizer, pulp and paper, minerals and many other industries, Koch used its early success in the oil business to springboard into other lucrative sectors.

If the public trusts your work, and the business world recognizes you for excellence in your field, they’ll both welcome you with open arms in other industries. It’s called building your track record and using it to grow. Koch Industries is a perfect example of this.

 

4. You Don’t Need a Fancy Address to Build a Massive Company

I see it a lot in the world of finance: entrepreneurs starting a venture capital firm feel they won’t get the respect they deserve if they aren’t headquartered in Toronto or New York. Oil & gas entrepreneurs often feel they have to be headquartered in Houston or Calgary, and tech companies Silicon Valley.

During its days as a startup, Koch Industries (originally named Wood River Oil and Refining Co.) was headquartered in a small office in Wichita, Kansas – not exactly the business, or even oil, hub of America. But that didn’t stop the company from growing into one of the world’s largest, and more diverse, private companies. And guess what… Despite now being a global powerhouse, Koch Industries is still headquartered in Wichita, albeit in a much larger office than the original building Fred Koch, Sr. started with. The same can be said for Warren Buffett’s Berkshire Hathaway, which has been headquartered in Omaha, Nebraska since inception.

 

5. Going Into Business with Family Can Strain Relationships

I’m a staunch supporter of going into business with family or friends. You have to trust your business partners implicitly, after all. And who can you trust more than family and friends? However, as witnessed with Koch Industries, partnering with family in business comes with its challenges, particularly when decisions aren’t being made unilaterally.

I think when partnered in business with family or friends we can sometimes get a bit blasé about partnership protocol because a high level of trust was established so long ago. In light of that, and I’ve been guilty of this too, decisions about the business that may seem like a formality to one partner are made in haste and without consulting the other partner (friend or family). Obviously, this can create problems within an organization, which it did for Koch Industries. In fact, for the Kochs, it led to a multimillion dollar, and multi-year, lawsuit between brothers Bill and Charles. What started out as a difference of opinion in how the company should be run led to runaway legal bills, a public relations nightmare, family divide (this brought tremendous stress to the brothers’ aging and ailing mother), and a proxy battle.

 

Often misrepresented by the mainstream media, there is much we can learn from the Koch brothers. Building one of the world’s largest private companies in Koch Industries wouldn’t have been possible without the entrepreneurial acumen of these men. To learn more about their upbringing and business endeavours, I encourage you to read Sons of Wichita: How the Koch Brothers Became America’s Most Powerful and Private Dynasty by Daniel Schulman. It’s a great book for entrepreneurs.

Stay hungry,
Aaron Hoddinott signature

 

 

Aaron

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Like all of you entrepreneurs and investors out there, Aaron has been in the trenches. He is the founder of an influential online media and PR company. From oil wildcatters to mining prospectors, tech gurus to medical doctors, and even celebrities, Aaron has helped market and expand brand awareness for a diverse range of publicly traded companies ran by entrepreneurs from all walks of life.

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